In various countries across the globe, employees receive ‘thirteenth month pay’ (13th month pay) and sometimes even ‘fourteenth month pay’ (14th month pay). This is a form of compensation given to an employee in addition to their annual salary. However, the amount paid, as well as the timing, tax implications and exact definitions of ‘13th month pay’ differ from country to country.
In this guide we’ll help you understand:
- What 13th and 14th month pay is
- How it’s calculated
- Which countries have mandatory or customary 13th month pay
- Who is eligible for it
- How 13th month pay is taxed
We’ll also tell you how Omnipresent can take away the stress of applying 13th month pay through our compliant and hassle-free global payroll solution.
What Is 13th or 14th Month Pay?
Thirteenth month pay is a form of compensation that is paid in addition to an employee’s annual (12-month) salary. Often - but not always - this equates to one month’s salary. It’s also known as 13th month salary or 13th salary. In some countries, a 14th month salary is also common.
The Philippines was one of the first countries to legally introduce 13th month pay in 1975 - and it’s still enshrined in the local employment law. Nowadays, 13th month pay is widely popular across all continents.
Is 13th Month Pay Just a Bonus, Then?
13th month pay isn’t just a bonus - it’s more complicated than that. In some countries like Austria, it’s referred to as ‘holiday or Christmas money’ (Urlaubs- und Weihnachtsgeld). But this doesn’t mean it’s treated as a bonus or commission. It’s not the same as holiday pay, either - i.e. the pay employees are entitled to when taking holiday leave. The bottom line is that each country will have its own definition and implementation of 13th month pay.
To hire talent internationally, you need sound knowledge of 13th month pay regulations. In fact, this knowledge is essential for your company to remain compliant. Due to the complexities and variations of 13th month pay across different countries, you may want to work with a global EOR like Omnipresent who can provide compliant payroll services for you. We’ll go into more detail on that later.
Is 13th Month Pay Mandatory?
In some countries, like the Philippines, 13th month pay is a legal obligation. But in many other places, it’s customary. Below you’ll find a useful list of the countries that have 13th and 14th month pay. But first, let’s find out what ‘mandatory’ and ‘customary’ mean for your business.
Mandatory 13th month pay is enshrined in local employment law, so it goes without saying that not paying a mandatory 13th month pay can lead to legal action and penalties for non-compliance. Because of that, it’s important to find out about these laws prior to hiring your international talent.
In countries where 13th month pay is customary, the exact terms will be agreed upon in the employment contract or through industry or collective agreements. And while it’s not a legal requirement, not paying customary 13 month pay can negatively affect employee retention as it has become an expectation.
The tables below detail some of the key markets where 13th month pay (or an extra payment reflecting the concept of 13th month pay) is either mandatory or customary:
Who Is Eligible for 13th Month Pay?
Where it is mandatory, an employment relationship alone can include entitlement to 13th month pay. In the Philippines, for example, all employees are entitled to 13th month pay, provided they have worked for at least one month within the calendar year.
However, in some countries and cases, certain employees aren’t entitled to 13th month pay. For example, managers, public sector staff, or personal service employees may be exempt. This will be specified by local authorities.
Employees receiving bonuses of equivalent value do not necessarily receive 13th month pay either. Contractors and people on zero-hour contracts will also not typically receive a 13th month pay.
You’ll need to find out the eligibility of each of your hires for 13th month pay on an individual basis - or to make things easier you could use Omnipresent to do it for you.
When Is 13th Month Pay Given?
Once you’ve determined if your potential hire should receive 13th or 14th month pay, you’ll need to know when to pay it. And that depends on the country they’re based in.
As the above tables suggest, 13th salary payment dates are tied to national regulations and customs. The exact time of the year is often stipulated in employment contracts or collective agreements, if not in law.
The timing can also be tied to cultural norms and traditional celebrations. The emergence of 13th month pay in the Philippines is in part linked to its predominantly Christian roots, so legally it has to be paid out before the cut-off date of 24th December - just in time for Christmas festivities.
This is the case in several other countries, too. In Greece, 14th month pay is mandatory. One half is paid out in full for Christmas, the other is divided and paid out at Easter and in the summer. Likewise, in Saudi Arabia, a mandatory 13th month salary is paid on Eid al-Fitr. In China and Singapore, 13th month pay tends to be paid out for Lunar New Year.
This timely pay helps employees afford expensive celebrations and enjoy special holidays with their families. Therefore, it’s an important part of an employee’s compensation package. When employing new talent abroad, being aware of these cultural and regional nuances can do wonders for your employee recruitment and retention. It also signals adaptability to local business practices to local authorities.
How to Compute 13th Month Pay
As you’ve probably guessed by now, the exact computation of 13th month pay depends on the country in question.
In some countries, 13th month pay is calculated as an additional salary, so you typically divide the total basic salary by 12 to work out the amount owed for the 13th month. This is the case in the Philippines, where the computation formula is: total basic salary / 12 = 13th month pay. In other words, it’s equivalent to one month’s salary of that year. The total basic salary does not include any bonuses or other monetary benefits received that year.
In other countries, 13th month pay is calculated as part of the annual salary. The following formula is applied: annual base salary / 13 = 13th month pay. This is the case in Italy or Brazil.
But it doesn’t stop there. In some countries, there are other more unique forms of calculating 13th month pay. In India, it is calculated as a bonus in the form of a percentage of the annual salary.
Argentina has a well-known take on 13th month pay, locally called aguinaldo. Employees are paid 13th month pay in two installments - once in June and again in December. The amount paid each time is equivalent to 50% of the highest monthly salary paid in the months prior to receiving aguinaldo. Here, the formula is: (monthly salary / 12) x months worked = 13th month pay.
Argentina’s formula adjusts the 13th month pay to the number of months an employee has actually worked. This is also the case in the Philippines.
As you can see, paying 13th month salaries isn’t straight-forward, especially if you’re hiring talent in numerous countries. That’s why it’s best to seek help from those with knowledge of local payroll processes and regulations, like our team here at Omnipresent.
How to Compute 13th Month Pay in the Philippines
13th month pay computation in the Philippines is pretty simple; you just need to know the employee’s basic salary to work it out. You then divide that yearly salary by 12, the number of months in a year. The number you’re left with is 13th month pay (i.e., the sum of money to be paid by December 24).
Here’s the 13th month pay formula for the Philippines:
Total basic salary per annum (minus unpaid absences) / 12 = 13th month pay
If you’d like to learn more about 13th month pay law in the Philippines, check out our dedicated guide.
Is 13th Month Pay Taxable?
The 13th month pay tends to be taxed, but in some countries, it’s not. How this is done varies from country to country. In the Philippines, any payments over PHP 90,000 will be subject to taxes. In countries like Austria, the 13th and 14th month pay is taxed but at a significantly lower rate (6%) compared to the normal taxation rate.
You will need to be aware of these differences when hiring remotely, as not paying the right taxes can lead to non-compliance and the accompanying legal fines and penalties.
You don’t need to go it alone though, because Omnipresent can help take away the burden of international payroll and sort out all the complexities of 13th and 14th month pay for you.
Make Global Payroll Hassle-free with Omnipresent
Omnipresent offers a global payroll solution that makes calculating and paying 13th and 14th month pay easy for you. As part of our global employment service, we include a comprehensive payroll solution. This means we:
- Calculate & pay your staff’s salary, benefits, & taxes for you (including 13th salary)
- Help you tailor benefits packages for your team
- Get advice on salary benchmarking
- Pay all your staff with one invoice
- Ensure your company is compliant
You can access all your records on the OmniPlatform and manage remote staff admin in one place. We’ve adapted the payroll process to global businesses, so you can hire talent internationally with peace of mind. If you’d like to find out more, you can get in touch for a free consultation.